Stranded assets and the tricky question of oil and gas
In response to a question from a viewer, Julia asked for the panel’s view on stranded assets and concerns relating to them. The panel agreed that the jury’s still out on this matter and they engaged in a very interesting discussion. Municchi stressed that it’s very important to be aware of the other trends and not just about ESG as a factor. She said that this is crucial for the due diligence of a company that is using it as a way of driving better performance. She also sees the need for a change in the macroeconomic models used.
Mellor then added that there is an opportunity for a lot of these companies to transform; that they are slowly starting to open up to that and looking at what the future might look like for them. But he commented “obviously, the type of assets that might not be able to be used in the future are a problem from a financial standpoint which investors need to deal with”. It’s also important that investors that the risk of stranded assets account irrespective of the whats and whys and whether there is a focus on sustainability outcomes or not.
For Middleton, clean energy is one area that’s really exciting. He expanded on the theme with some great examples of how this was particularly relevant in startups but added a parallel comment about the corporate venturing houses of large energy firms. In his view, there is going to be a change in these businesses in the way they think about their purpose, in how they provide their services and how quickly they can make that transition. He comments, “I think we will see divergence, quite radical divergence, between the firms that are taking a more proactive approach today to reorienting their business lines and those that are stuck in the past.”
In agreeing, Mellor went one step further and brought debate around two approaches. “One is very much the ethical view. Do you want to invest or not invest – the divest question? The second is just the hard-nosed economics.”
He went on to use the energy sector as an example of this commenting “it’s been one of the worst performers in recent years and it’s been underperforming partly because of those fears on stranded assets, partly because of lower oil prices. But these are, as Max says, the companies that are putting some of the biggest amount of money to play in clean energy space. So how do you address that? And that ultimately goes down to your view as an investor. Do you think Shell and BP are going to do a better job of transitioning and moving to clean energy than investing in a company that’s involved in the clean energy space that is also not contributing to carbon emissions today? The reality is the world still needs that oil. We’re still not in a position to run on a fully renewable, zero-carbon basis. So those companies still need to produce whichever way you view it.
“However”, Mellor continued, :from a hard-nosed investor perspective, would you rather be investing in a clean energy company that is entirely focussed on that area of the business? Is that a theme or a sector that you think is going to do better over the long run as the huge demand for their business acumen and business activity is going to continue ot grow vs. an oil company that is trying to make that transition and deal with the stranded assets question.”
The need for transparency
The final panel debate was around transparency of the products invested in and the alignment between what the client is expecting and what products are being delivered. Also the panel’s view was that the level of understanding between fund managers varies and data and resources are essential. They also discussed the forthcoming COP26 to be hosted by the UK later this year and the opportunities around this to really raise the UK’s profile as a leader in building sustainable solutions and technologies to tackle biodiversity loss and climate change.
Shaping the future
The discussion closed with comments on why ESG and sustainability is not just important but also very exciting to be involved in. All agreed that the potential to make a real difference is at the heart of what they do. Seen as the defining trend of the decade for investors, by investing in a fund or owning shares in a company, people now have a say on how we build a sustainable global future. And that’s certainly a powerful proposition.
Catch up on the full discussion
You can watch the full recording of the webinar here
About Maria Municchi
Maria is fund manager on several of M&G’s Multi Asset Sustainable Investment strategies. She has been part of the Multi Asset fund management team since January 2017, having initially joined M&G in 2009 as an investment specialist to the Multi Asset and Convertibles teams. Before M&G, Maria worked at Barings and UBS Asset Management. She has an MSc in international management and finance, is a CFA charterholder, and has successfully completed the University of Cambridge Institute of Sustainability Leadership programme in Business Sustainability Management.
About Dr. Christopher Mellor
Head of ETF Equity and Commodity Product Management, Invesco
Chris leads the EMEA ETF equity & commodity product management team at Invesco, responsible for providing support and analysis for their range of equity ETFs. Before joining Invesco he worked as an investment strategist, focusing on market timing and tactical allocation across regions, sectors and styles for Sunrise, State Street Global Markets, Credit Suisse and Societe Generale. Chris holds a DPhil in Inorganic Chemistry from Balliol College, Oxford. He is a charterholder of the CFA Institute.
About Max Middleton
Max has overall responsibility for the Vala Sustainability EIS Fund and supports equity transactions across all Vala funds. Max is an experienced VC investor with a track record of supporting businesses building a more sustainable future. Max is a CFA charter-holder, with an MSc from the London School of Economics and a BA from Vassar College in New York.
